BBC

Sunday, 12 November, 2000, 15:47 GMT Hyundai faces bankruptcy deadline

Unions are angry at the thousands of job cuts The Hyundai Engineering Company is teetering on the edge of bankruptcy.

For the second week in a row, one of Korea's flagship companies faces collapse and is forced to ask its creditors for mercy.

Hyundai says that "foreign creditors have been asked to extend the maturity of $80 million dollars of bonds with warrants due on Monday," but claims it can meet the $35m in loans due to domestic Korean suppliers.

The state-owned Korea Exchange Bank, which is Hyundai's largest creditor, says the company owes it $2.6bn in debt, and has further borrowings of $4.4bn.

Last week creditor banks agreed to roll over more than $700m worth of debt until the end of the year, in order to allow the company to raise more money.

But the banks have threatened to take control of Hyundai if it fails to meet that deadline.

Korean Finance Minister Jin Nyum told the ailing company that it would be forced into court receivership or to accept the debt-for-equity swap, if its fresh reform plans proved unsatisfactory.

Reforming the chaebols

The Korean government and foreign observers believe that the giant Korean companies, or chaebols, who got into financial trouble by over-borrowing during the Asian crisis, need drastic restructuring.

But attempts to slim them down, as in the case of Daewoo Motors, has led to fierce union resistance - and a reluctance by foreign firms to step into the breach.

Last week Daewoo was put into receivership by its creditors, a move which may ultimately make it more attractive to prospective foreign buyers like GM, who are still investigating a possible purchase.

On Sunday Korean trade unions demonstrated against the planned 3,500 job cuts at Daewoo if the restructuring plan goes through.

Hyundai is the largest of Korea's family-run conglomerates, but a rare family dispute is adding to its troubles.

Brothers fall out

Chung Mong-Hun, who heads Hyundai Engineering,, has called for financial help from his brothers and relatives who control other Hyundai affiliates - partly in order to avoid having to sell his own stake in the company.

But Chung Mong-Koo, chairman of Hyundai Motors, the country's largest automaker, and eldest son of group founder Chung Ju-Yung, has rejected giving financial assistance to Hyundai Engineering.

The brothers have been at odds after their father chose Chung Mong-Hun as his successor to the throne of the remnants of the vast Hyundai empire. Hyundai Motors became a separate company on 1 September.

The refusal by Hyundai Motor to give Hyundai Engineering a helping hand was seen as a setback to the company's efforts to scrape up fresh cash to avoid bankruptcy by the end of the year.

The construction firm is hoping to sell off a huge parcel of reclaimed land in Sosan to help pay off its debt.

But analysts are sceptical that it can raise enough to retain family control.

"The reason why they failed to meet the target was not because they were slow in implementing but because they proposed measures they could not carry out," said one analyst at a foreign brokerage.

-- Rachel Gibson (rgibson@hotmail.com), November 12, 2000